Strong second-quarter growth bodes well for M’sia
THE recent announcement on Malaysia’s second-quarter economic performance offers some positive news, amid blaring warning bells signalling a potential global recession.
The economy grew at the strongest rate in five quarters for the April to June period, at a time when several other key economies in South-East Asia reported multi-year low growth in the same three-month period.
The 4.9% growth in the second quarter of 2019 (2Q19) marks the third consecutive quarter for the economic performance to surpass market prediction.
A Bloomberg survey of 22 economists expected a median gross domestic product (GDP) growth of 4.7% in 2Q19. Meanwhile, a Reuters poll of 13 economists had a median forecast of 4.8%.
Notably, Malaysia’s economic growth in the second quarter was also higher than the 4.5% recorded in 1Q19 and 2Q18.
The second quarter witnessed stronger household spending, sustained export growth and a recovery in commodity production. Not only that, private investment also sees a slight rebound of 1.8% in the three-month period.
Recall that in the first quarter, the country’s private investment growth fell to a multi-quarter low of only 0.4% y-o-y as compared with 5.8% in 4Q18.
Factoring in the latest growth figures, Bank Negara has maintained its full-year GDP forecast for 2019 at 4.3% to 4.8%, although Prime Minister Tun Dr Mahathir Mohamad has reportedly said in June that Malaysia could achieve a GDP growth of above 5% this year.
Governor Datuk Nor Shamsiah Mohd Yunus hinted that the country’s economy could expand beyond the central bank’s official guidance.
She says that positive outcomes from the US-China trade war and lower-than-expected inflation could raise GDP growth higher than 4.8%. However, in the event the US-China trade war worsens, she predicts that
There is also sufficient space in the monetary and fiscal space to support the economy.
Datuk Nor Shamsiah Mohd Yunus
Malaysia’s exports and GDP growth could potentially be reduced by up to an additional 0.2 percentage points (ppt) and 0.1 ppt, respectively.
“Despite the concerns, going forward, we expect the Malaysian economy to remain resilient given its diversified economy and the support from domestic demand.
“There is also sufficient space in the monetary and fiscal space to support the economy,” she tells reporters during a briefing on GDP results.
Alliance Bank Malaysia Bhd chief economist Manokaran Mottain tells StarBizWeek that Malaysia is unlikely to enter a “full-blown recession”, even if a global recession strikes.
“The revival of mega projects such as the East Coast Rail Link and Bandar Malaysia, among others, will be positive catalysts for the economy. These projects will act as “stimulus package” in a way and support the economy.
“The worst we can see is a further slowdown in growth, but definitely not a recession,” he says.
Commenting on the country’s expected headline inflation, Nor Shamsiah opines that it could average higher in the second half following the lapse in the impact of change from goods and services tax to sales service tax consumption policy.
In the first quarter, Malaysia registered a deflation of 0.3%. However, in the second quarter, headline inflation was at 0.6%.
“Underlying inflation is expected to remain stable, supported by the continued expansion in economic activity and in the absence of strong demand pressures,” she says.
Across the region, economic growth of several neighbouring countries have slowed down in the second quarter and concerns of a further slowdown in growth have intensified in recent quarters.
In Indonesia, its GDP for the second quarter rose by 5.05% – its slowest pace in two years.
Meanwhile, in the Philippines, the economy registered the slowest growth in four years, with a growth rate of 5.5%.
The situation is worse in Singapore where the economy merely inched up by 0.1%, marking the lowest growth in a decade. The city state has slashed its growth forecast for 2019 to 0% to 1%, down from a previous projection of 1.5% to 2.5%.
Thailand, on the other hand, has yet to announce its GDP results for the second quarter. However, based on a recent Reuters poll, economists predict the country’s economy to expand by 2.4% in 2Q19, the weakest in four and a half years.
On the second quarter GDP results, Nor Shamsiah says that the strength in private sector expenditure, recovery in commodity output and higher net exports were the key factors that accelerated the domestic economic growth in 2Q19.
She also points out that the 2Q19 GDP growth was supported by continued expansion across all economic sectors, with higher growth rates in the mining, manufacturing and construction sectors.
The mining sector saw a significant turnaround with a 2.9% year-on-year (y-o-y) growth in 2Q19, as compared to a decline of 2.1% y-o-y a year earlier. The improvement is mainly due to recovery in natural gas output from supply disruptions in 2018.
The growth in the manufacturing sector improved slightly with a growth rate of 4.3% y-o-y (2Q18: 4.2%), supported by better performance of the domestic-oriented industries.
Meanwhile, the construction sector grew by 0.5% y-o-y (2Q18: 0.3%), given the improvements in the residential and special trade sub-sectors. On the other hand, the services sector slowed down in growth as it expanded by 6.1% y-o-y in 2Q19, as compared to 6.4% y-o-y in the same quarter a year earlier. The agriculture sector also saw a slower growth of 4.2% y-o-y as compared to 5.6% yoy in the second quarter of 2018.
On the demand side, Nor Shamsiah says private consumption growth remains firm at 7.8% in 2Q19, while household spending is lifted by real wage growth of 3.6%, which is still above the recent average of 3.1%.
“Government measures such as the Aidilfitri special assistance and Bantuan Sara Hidup also provided some lift to overall household spending in the current quarter,” says Nor Shamsiah.
Speaking to StarBizWeek, Socio-Economic Research Centre executive director Lee Heng Guie raises concerns on whether the strong growth seen in 2Q19 could be sustained into the second half of 2019.
“While we expect continued positive economic growth, but the growth rate will likely be slower estimated between 4.6% to 4.7% in 2H19 given the heightened trade tensions could nudge the world economy towards a recession.
“While domestic consumer spending has held up pretty well, we should remain wary about consumer resilience in the wake of global recession risk as they are concerned about the spillover effects on domestic economy via both trade and financial channels. The slackening private investment growth remains a concern, which requires prompt actions and measures to reinvigorate its vitality over the medium-term.
“We estimate this year’s GDP growth to increase by 4.5% to 4.7% and between 4.5% to 4.8% in 2020,” he says.
However, on a positive note, Lee says that Malaysia is in a position of strength to face headwinds.
“Still-sound economic and financial fundamentals supported by facilitative policies and accommodative monetary policy apart from a well-diversified trade and economic sectors are the positive drivers for the economy.
“The government’s fiscal policy could also be recalibrated to allow some room for an expansionary budget, focussing on sectors, initiatives and measures that would protect growth-enhancing spending and investment,” he says.
Bank Negara’s latest data also shows that the country’s realised foreign direct investments (FDI) in the second quarter stood at RM4.4bil.
Recall that Malaysia’s realised FDI surged to an all-time-high of RM21.7bil in the first quarter.
It is interesting to note that while realised FDIs have declined, the country’s direct investment abroad (DIA) has surged.
In the second quarter, a total DIA of 12.6bil was recorded as compared to RM5.5bil in 1Q19.
Meanwhile, as for portfolio investments, a net outflow of RM10.2bil was registered in 2Q19. In the previous quarter, a net inflow of RM2.1bil in portfolio investment was recorded.